As filed with the Securities and Exchange Commission on July 10, 1997
Registration No. 333-25675
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1 to
Form S-3 Registration Statement
Under
The Securities Act of 1933
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TERA COMPUTER COMPANY
(Exact name of registrant as specified in its charter)
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WASHINGTON 93-0962605
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2815 Eastlake Avenue East
Seattle, WA 98102-3027
(206) 325-0800 (telephone)
(206) 325-2433 (facsimile)
(Address, including zip code, and telephone and facsimile numbers,
including area code, of principal executive offices)
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James E. Rottsolk, President
Tera Computer Company
2815 Eastlake Avenue
Seattle, WA 98102-3027
(206) 325-0800 (telephone)
(206) 325-2433 (facsimile)
(Name, address, including zip
code, and telephone and facsimile numbers,
including area code, of agent for service)
Copy to:
Kenneth W. Johnson
Stoel Rives LLP
One Union Square, 36th Floor
Seattle, WA 98101-3197
(206) 624-0900 (telephone)
(206) 386-7500 (facsimile)
Approximate date of commencement of proposed sale to the public:
From time to time after this registration statement becomes effective
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The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said section 8(a), may determine.
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Subject to Completion, Dated July 10, 1997
PROSPECTUS
TERA COMPUTER COMPANY
1,395,000 Shares of Common Stock
The shares offered hereby (the "Shares") consist of shares of Common Stock, $.01
par value ("Common Stock"), of Tera Computer Company, a Washington corporation
(the "Company"), which may be offered from time to time by the selling
stockholder described herein under "Selling Stockholder" (the "Selling
Stockholder"). The Company will not receive any of the proceeds from the sale of
the Shares by the Selling Stockholder. The Company has agreed to bear all
expenses (other than selling commissions and fees and certain expenses of
counsel and other advisors to the Selling Stockholder) in connection with the
registration of the Shares being offered by the Selling Shareholder. The Company
has agreed to indemnify the Selling Stockholder against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
The Shares may be sold in transactions on the Nasdaq SmallCap Market at the
market prices then prevailing, in privately negotiated transactions or
otherwise. In connection with any sales, the Selling Stockholder and any brokers
and dealers participating in such sales may be deemed to the "underwriters"
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"). See "Plan of Distribution."
On March 24, 1997, the Company sold 3,000 shares of its Series B Convertible
Stock, $.01 par value (the "Preferred Stock"), to the Selling Stockholder in a
private transaction. The Shares include such presently indeterminate number of
shares of Common Stock as may be issued on conversion of or in payment of
dividends on the shares of its Preferred Stock held by the Selling Stockholder
pursuant to the provisions of the Statement of Rights and Preferences of the
Preferred Stock regarding determination of the applicable conversion price and
dividend rate. The actual number of shares of Common Stock issued or issuable
upon conversion of the Preferred Stock and the payment of dividends thereon is
subject to adjustment depending on factors which cannot be predicted by the
Company at this time, including, among others, the future market prices of the
Common Stock.
The Common Stock is listed on the Nasdaq SmallCap Market under the symbol TERA.
On July 9, 1997, the closing price for the Common Stock was $4.813.
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These Securities Involve a High Degree of Risk. See "Risk Factors" beginning on
page 4 for Certain Factors Related to This Offering.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus. This Prospectus does not constitute an offering in any
jurisdiction in which such offering may not lawfully be made. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as to which information has
been given herein.
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The date of this Prospectus is __________, 1997.
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TABLE OF CONTENTS
Section Page
- ------- ----
The Company .................................................................. 2
Incorporation of Certain Documents by Reference .............................. 3
Available Information ........................................................ 3
Risk Factors ................................................................. 4
Recent Events ................................................................12
Capitalization ...............................................................13
Selling Stockholder ..........................................................14
Plan of Distribution .........................................................15
Experts ......................................................................16
Limitation of Liability and Indemnification ..................................16
THE COMPANY
The Company was formed to design, develop and market high performance
general purpose parallel computer systems. Tera's Multithreaded Architecture
System ("MTA system") is designed to address a wide range of scientific and
engineering applications, such as simulation and visualization of complex
mechanical and biochemical systems, as well as emerging commercial applications,
such as database mining, information-on-demand and computer-aided design and
visualization. The Company believes that its MTA system architecture represents
a significant breakthrough in high performance computing that will enable the
Company to offer systems with several times the price/performance of currently
available commercial high performance computer systems. The Company believes
that the MTA system overcomes the limitations of currently available commercial
architectures by delivering a general purpose parallel, easy-to-program,
scalable, very high performance computer system. The MTA system is designed to
combine the very high computational price/performance levels of massively
parallel processing with the ease of use of conventional shared memory
programming. Typical MTA system configurations are expected to sell for between
$5 million and $40 million. The Company's initial delivery of an MTA system is
scheduled for the third quarter of 1997 to the San Diego Supercomputer Center.
See "RISK FACTORS - Manufacturing Risks; Reliance On and Capacity Of Third Party
Sole Source Suppliers."
The Company was incorporated in Washington in December 1987. The Company's
principal executive offices are located at 2815 Eastlake Avenue East, Seattle,
Washington 98102-3027, and its telephone number is (206) 325-0800.
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"Tera" and "MTA" are trademarks of the Company. This Prospectus also
contains and incorporates trademarks of other companies.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Securities
and Exchange Commission (the "Commission") pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), are incorporated in this
Prospectus by reference:
(a) The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996;
(b) The Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1997;
(c) The Company's Current Reports on Form 8-K, filed on April 1, 1997
and May 2, 1997;
(d) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form SB-2 (Registration No.
33-95460-LA), including any amendment or report filed for the purpose of
updating such description, as incorporated by reference in the Company's
Registration Statement on Form 8-A (Registration No. 0-26820), including
the amendment thereto on Form 8-A/A filed by the Company.
All reports and other documents subsequently filed by the Company pursuant
to sections 13(a), 13(c), 14, and 15(d) of the Exchange Act prior to the
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of the filing of such reports and
documents.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, omits
certain information contained in the Registration Statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities Act and
the rules and regulations of the Commission thereunder. For further information
with respect to the Company and the Shares, reference is made to the
Registration Statement and the exhibits and schedules thereto. The Registration
Statement, including exhibits thereto, may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at 7 World Trade Center, Suite 1300, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and copies may be obtained at the prescribed rates from the Public Reference
Section of the Commission at its principal office in Washington, D.C. Copies of
such documents may also be inspected at the offices of the National Association
of Securities Dealers, Inc., 1735 K Street N.W., Washington, D.C. 20006.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed
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as an exhibit to the Registration Statement, each such statement being qualified
in its entirety by such reference.
The Company's Common Stock and its Redeemable Common Stock Purchase
Warrants (the "Warrants") are registered with the Commission under Section 12(g)
of the Exchange Act and, in accordance therewith, the Company files reports,
proxy statements, and other information with the Commission. Such filings can be
inspected and copied at the Commission's public reference rooms at the
above-referenced addresses, at prescribed rates, or from the Commission's
Website at "http://www.sec.gov." The Company's Common Stock and Warrants are
traded on the Nasdaq SmallCap Market under the symbols "TERA" and TERAW,"
respectively.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, including any beneficial
owner, on the written or oral request of any such person, a copy of any or all
of the incorporated documents, other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference therein. Requests shall
be directed to Tera Computer Company, 2815 Eastlake Avenue East, Seattle, WA
98102-3027, Attention: President (telephone number (206) 325-0800). The
information relating to the Company contained in this Prospectus does not
purport to be comprehensive and should be read together with the information
contained in the incorporated documents.
RISK FACTORS
In addition to the other information in this Prospectus, each prospective
investor should carefully consider the following factors in evaluating the
Company and its business before purchasing the securities offered hereby. No
investor should participate in the Offering unless such investor can afford a
complete loss of his or her investment. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including but not limited to those
set forth in the following risk factors and elsewhere in this Prospectus.
Development Stage Enterprise; History of Losses. The Company is a development
stage enterprise that had an accumulated loss of approximately $29.5 million as
of March 31, 1997. The Company has experienced net losses in each year of
operation and expects to incur substantial further losses while it tests and
evaluates its MTA system prototype and commences production, and possibly
thereafter. The Company has had no revenue or earnings and does not expect to
recognize revenue from the sale of its initial MTA system until the third
quarter of 1997, if ever. Whether the Company will achieve revenue or earnings
will depend upon a number of factors, including its ability to design, develop,
manufacture and market the MTA system and to achieve broad market acceptance
thereof. In addition, profitability will be dependent on, among other things,
the level of revenue in any given period, the terms and conditions of sale or
lease for an MTA system, the system model or models sold, and the Company's
expense levels and manufacturing costs. There can be no assurance that the
Company will be successful in completing the development of, and delivering and
receiving payments for, production MTA systems, or that it will be able to
generate sales or achieve a profitable level of operations in the future.
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Development Status of the MTA System. The development of a new very high
performance computer system is a lengthy and technically challenging process and
requires a significant investment of capital and other resources. Several
companies in this market have experienced extreme financial difficulty in the
past several years, including Thinking Machines Corporation, Cray Computer
Corporation, Kendall Square Research Corporation and Supercomputer Systems, Inc.
Since its inception through March 31, 1997, the Company has expended
approximately $40.7 million to design and develop the MTA system. The hardware
development effort has included design of integrated circuits, packaging and
cooling systems and at-speed testing equipment. The software development effort
has included design of compilers, an operating system and input-output software
technology. Until November 1996, when the Company announced that its initial
prototype was undergoing testing and had run its first programs, the MTA system
has been subject only to computer simulation, and the prototype system has
undergone only initial testing and evaluation. Even if the initial testing and
evaluation of the prototype system were successful, the Company has not
attempted to integrate multiple modules into a commercially configured system
and only recently commenced work on its initial production model.
Assuming that the MTA system prototype can be successfully developed,
modifications to the hardware components, software and the integrated system
still may be required. Development of system software is a difficult process,
and there can be no assurance that the Company will be able to meet all of the
technical challenges required to integrate and complete an MTA system that
satisfies both internal and commercially acceptable performance specifications.
Significant delays in completing the various hardware components or software, or
in integrating the full system, would materially and adversely affect the
Company's business and results of operations. Even if the Company is successful
in developing its prototype, there can be no assurance that the Company's
products will be commercially successful.
Manufacturing Risks; Reliance On and Capacity Of Third Party Sole Source
Suppliers. The Company intends to subcontract the manufacture of substantially
all of its hardware components, including integrated circuits, printed circuit
boards, flex circuits and power supplies, on a sole source basis to third party
suppliers, and there can be no assurance that such suppliers will be able to
manufacture the components to the Company's design specifications. Manufacturing
difficulties and limited yields, particularly of gallium arsenide ("GaAs")
integrated circuits and advanced printed circuit boards and flex circuits, could
materially and adversely affect the Company's ability to complete and deliver
production models of the MTA system. The manufacture of integrated circuits, and
in particular the manufacture of GaAs integrated circuits, is a difficult and
complex process. Minute impurities, difficulties in the fabrication process,
defects in the masks used to print circuits on wafers or other factors can cause
a substantial percentage of wafers to be rejected or numerous die on each wafer
to be non-functional. The Company's suppliers may experience problems in
achieving acceptable manufacturing yields for these or other reasons, resulting
in substantial delays in the delivery of necessary hardware components to the
Company and unacceptably high prices for those components, with a resulting loss
of profitability or loss of competitiveness for the Company's products. The
Company has experienced such yield problems already, and these failures forced
the Company to redesign certain components for manufacture by alternative
suppliers which caused delays in the fabrication of the Company's prototype and
increased demands upon the Company's financial resources. The Company also has
experienced delays in receiving integrated circuits and printed circuit boards
from its suppliers which meet its design specifications. There can be no
assurance that
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the Company's efforts to obtain components in a timely manner that meet its
design specifications will be successful, which has affected the Company's
ability to deliver its first MTA system to the San Diego Supercomputer Center on
schedule and may continue to do so. See "RECENT EVENTS - Use of Cash Resources."
Moreover, the production capacity of the Company's integrated circuit
suppliers is very limited and the availability of integrated circuits and other
components will be a limiting factor on the number and size of the MTA systems
that may be sold in 1997, assuming the receipt of additional purchase orders.
Absent improved yields, increased production capacity or a reallocation of such
suppliers' output to meet it's needs, the Company may be unable to obtain a
sufficient quantity of integrated circuits or other components to meet future
production and delivery schedules. In addition, some of the Company's key
suppliers are small companies with limited financial and other resources, and
may be more likely to experience financial difficulties than larger, well
established companies. Any or all of the Company's suppliers may make strategic
changes in their product lines, which may result in the delay or suspension of
manufacture of the Company's components or systems. In the event of a reduction
or interruption of supply of the Company's components, it could take the Company
a considerable period of time to identify and qualify alternative suppliers to
redesign its products as necessary and recommence manufacture. The Company's
inability to obtain sufficient sole or limited source components as required, or
to develop alternative sources if and as required in the future, could result in
the Company finding itself without a source of supply for its components; this
could materially impair the Company's ability to deliver its products, which
would materially and adversely affect the Company's business and results of
operations.
The Company's current contract with Unisys Corporation provides for
integrated circuit test and packaging services until December 1997. Although the
agreement could be extended, Unisys has informed the Company that it intends to
exit the semiconductor packaging business. If Unisys so exits the packing
business, the Company likely will contract for such packaging services from
Unisys' successor-in-interest for these services or, if such a contract cannot
be reached, either perform such work internally or utilize another third party
packager. There are not many such packagers available who could meet the
Company's specifications and it may be difficult to arrange such third party
packaging services. The inability of the Company to subcontract for these
services after its agreement with Unisys expires, or the Company's inability to
perform such services internally, would materially and adversely affect the
Company's business and results of operations.
Future Capital Needs. During 1997, the Company's working capital needs will
depend primarily upon its personnel costs, the cost of components purchased
to complete the testing of its initial MTA system prototype and
manufacturing startup costs, and inventory and receivable financing
associated with production MTA systems. The Company has experienced delays
in the development of particular components of the MTA system that have
increased the need for working capital, and the Company could experience
significant additional delays in the manufacturing process that could
further substantially increase the Company's need for working capital.
Personnel operating costs will be required to fund ongoing research,
development and engineering efforts, development of a customer service
organization and increases in its sales and marketing efforts.
Additionally, the Company's administrative functions will increase in order
to support its engineering and sales efforts.
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On June 25, 1997, the Company redeemed all of its unexercised publicly held
Warrants. To make the exercise of those Warrants attractive before the
redemption, the Company reduced the exercise price of the Warrants from $7.20 to
$5.00 per Warrant, with 1.25 shares of Common Stock issuable upon exercise of
each Warrant. The Company received approximately $10.6 million from the exercise
of 2,130,527 Warrants, net of expenses, with 95,604 Warrants redeemed at $.05
per Warrant. These funds, along with funds anticipated from sales of MTA
systems, are expected to be sufficient to fund the Company for at least the next
twelve months. See "RECENT EVENTS Warrant Exercises/Redemption" and "- Use of
Cash Resources."
Marketing Risks; Government Funding and Regulation. The Company's first sales
targets will be U.S. and foreign government agencies and research laboratories,
which constitute more than one-half of the market for very high performance
computer systems. The United States government historically has facilitated the
development of, and has constituted a market for, new and enhanced very high
performance computer systems. A change of policy by the United States government
or foreign governments that results in a reduction of, or delays in, funding of
certain high technology programs employing high performance computing could have
a major impact on the market for very high performance computer systems, and
would materially and adversely affect the Company's business, results of
operations and need for capital.
Most of the Company's potential customers already own or lease very high
performance computer systems. Some of the Company's competitors may offer
trade-in allowances or discounts to potential customers, and the Company may not
be able to match such sales incentives. The Company may be required to provide
discounts in order to make sales or be required to finance the leasing of its
products, which would result in a deferral of the Company's receipt of cash for
such systems. These developments could materially and adversely affect the
Company's business and results of operations.
The United States government regulates the export of high performance
computing systems such as the anticipated MTA system. There can be no assurance
that the U.S. government will grant any necessary export licenses for the sale
of MTA systems to foreign buyers. The Company's prospects for growth will depend
in part on its ability to obtain export licenses for foreign sales, the delay or
denial of which could materially and adversely affect the Company's business and
results of operations.
In order to expand its market beyond the very high performance scientific
market, and particularly beyond government agencies and research laboratories,
to engineering and other commercial markets, the Company must be able to attract
independent software vendors to port their software application programs so that
they will run on the MTA system. There can be no assurance that the Company will
be able to induce independent software vendors to port their applications, and
the failure to do so could materially and adversely affect the Company's
business and results of operations.
Management of Growth; Dependence on Key Personnel. If the Company is successful
in developing and marketing the MTA system, the Company believes it could
undergo a period of rapid growth which could place a significant strain on its
management, financial and other resources. The Company's ability to manage its
growth will require it to continue to improve its operational and financial
systems and to motivate and effectively manage its employees. If the Company
grows, it
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will have to implement new financial, budgeting, management information and
internal control systems. The success of the Company will depend on the ability
of management to implement effectively these changes and to manage the Company's
operations over the long term. Several senior management personnel have not yet
been identified, including a chief financial officer. The Company's success also
will depend in large part upon its ability to attract and retain highly skilled
technical personnel to provide technological depth and support, to complete and
enhance its first products and to develop new products. In addition, marketing
and sales personnel will be needed. Competition for highly skilled management,
technical, marketing and sales personnel is intense. There can be no assurance
that the Company will be successful in attracting and retaining key management,
technical, marketing and sales personnel, and its failure to do so would
materially and adversely affect the Company's business and results of
operations.
The Company is dependent on Burton J. Smith, the Company's Chairman of the
Board and Chief Scientist, and James E. Rottsolk, the Company's Chief Executive
Officer, and the loss of services of either could have a material impact on the
ability of the Company to achieve its business objectives. The Company has key
man life insurance policies on the lives of Messrs. Smith and Rottsolk in the
amount of $2 million and $1 million, respectively. The Company has no employment
contracts with either Mr. Smith or Mr. Rottsolk or with any other employee.
Quarterly Performance May Vary Significantly. In the event that the Company is
able to attain broad market acceptance of the MTA system, one or a few system
sales may account for a substantial percentage of the Company's quarterly and
annual revenue because of the anticipated high average sales price of the MTA
system models and the timing of purchase orders and product acceptances. Because
a number of the Company's prospective customers receive funding from the U.S. or
foreign governments, the timing of orders from such customers may be subject to
the appropriation and funding schedules of the relevant government agencies. The
timing of orders and shipments also could be affected by other events outside
the control of the Company, such as changes in levels of customer capital
spending, the introduction or announcement of competitive products, the
availability of components, currency fluctuations and international conflicts or
economic crises. Because of these factors, revenue, expenses, net income or loss
and cash flow are likely to fluctuate significantly from quarter to quarter.
Rapid Technological Change and New Products. The market for the Company's
products is characterized by rapidly changing technology, accelerated product
obsolescence and rapidly changing industry standards. The Company's success will
depend upon its ability to complete development of the MTA system and to
introduce new products and features in a timely manner to meet evolving customer
requirements. There can be no assurance that the Company will be successful in
these efforts. The Company's business and results of operations will be
materially and adversely affected if the Company incurs delays in developing its
products or if such products do not gain broad market acceptance. In addition,
there can be no assurance that products or technologies developed by others will
not render the Company's products or technologies noncompetitive or obsolete.
Competition. The Company's competitors can be divided into two general
categories: established companies that are well-known in the high performance
computer market and new entrants capitalizing on developments in parallel
processing and increased computer performance through networking.
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The high performance computer market is highly competitive and has been
dominated by Cray Research. Other participants in the market include IBM
Corporation ("IBM"), Intel Corporation ("Intel"), and foreign companies such as
Fujitsu, Ltd., Hitachi, Ltd., and NEC Corporation. Each of these competitors has
broader product lines and substantially greater research, engineering,
manufacturing, marketing and financial resources than the Company.
A number of companies, including IBM, Intel, Silicon Graphics, Inc.,
Fujitsu Ltd. and Convex Computer Corporation, have developed or plan to develop
massively parallel systems for the high performance computer market. Although to
date this kind of system architecture has been limited in applicability and
difficult to program, a breakthrough in architecture or software technology
could change this situation. There can be no assurance that such a breakthrough
will not occur, and such an advance would materially and adversely affect the
Company's business and results of operations.
There can be no assurance that the performance of the MTA system will be
competitive with the computer systems offered by the Company's competitors or
that the Company will be able to compete successfully over time against new
entrants or innovative competitors at the lower end of the market. Furthermore,
periodic announcements by the Company's competitors of new high performance
computer systems and price adjustments may materially and adversely affect the
Company's business and results of operations. The market has experienced a
recent consolidation as Convex Computer Corporation was absorbed by
Hewlett-Packard in 1995, Cray Research was acquired by Silicon Graphics, Inc. in
1996, and Intel has stated that it would no longer directly market high
performance computer systems.
Proprietary Rights. The Company relies on a combination of copyright and trade
secret protection, non-disclosure agreements and licensing arrangements to
establish, protect and enforce its proprietary rights. Despite the Company's
efforts to safeguard and maintain its proprietary rights, there can be no
assurance that the Company will be successful in doing so or that the Company's
competitors will not independently develop or patent technologies that are
substantially equivalent or superior to the Company's technologies.
Although the Company is not a party to any present litigation regarding
proprietary rights, there can be no assurance that third parties will not assert
intellectual property claims against the Company in the future. Such claims, if
proved, could materially and adversely affect the Company's business and results
of operations. In addition, although any such claims may ultimately prove to be
without merit, the necessary management attention to and legal costs associated
with litigation or other resolution of such claims could materially and
adversely affect the Company's business and results of operations.
The laws of certain foreign countries do not protect intellectual property
rights to the same extent or in the same manner as do the laws of the United
States. Although the Company continues to implement protective measures and
intends to defend its proprietary rights vigorously, there can be no assurance
that these efforts will be successful.
Shares Eligible for Future Sale. Sale of substantial amounts of the Company's
Common Stock in the public market or the prospect of such sales could materially
and adversely affect the market price of the Common Stock. As of June 30, 1997,
the Company had outstanding 9,693,351 shares of
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Common Stock and 3,000 shares of Series B Convertible Preferred Stock
convertible into the Shares offered hereby. The Company has agreed to register
the resale of 299,332 shares of Common Stock sold in a private placement in
March 1997. Thus almost all of the Company's outstanding shares of Common Stock
may be sold without substantial restrictions. The Company also has outstanding
privately placed warrants to purchase another 914,342 shares of Common Stock. In
addition, as of such date, the Company had granted options under its option
plans to purchase an aggregate of 1,779,652 shares of Common Stock. All of the
shares purchased under the stock option plans are available for sale in the
public market, subject in some cases to volume and other limitations.
Sales in the public market of substantial amounts of Common Stock,
including sales of Common Stock upon conversion of the Series B Preferred Stock
and the shares of Common Stock sold privately in March 1997, or the perception
that such sales could occur could depress prevailing market prices for the
Common Stock. The existence of the private warrants and any other options or
warrants may prove to be a hindrance to future equity financing by the Company.
Further, the holders of such warrants and options may exercise them at a time
when the Company would otherwise be able to obtain additional equity capital on
terms more favorable to the Company.
Possible Volatility of Stock Price. The trading price of the Company's Common
Stock could be subject to significant fluctuations in response to variations in
quarterly operating results, changes in analysts' estimates, announcements of
technological innovations by the Company or its competitors, general conditions
in the very high performance computer industry and other factors. In addition,
the stock market is subject to price and volume fluctuations that affect the
market prices for companies in general, and small capitalization, high
technology companies in particular, and are often unrelated to their operating
performance.
Possible Illiquidity of Trading Market; Reduction in Public Float. The Common
Stock is quoted on the Nasdaq SmallCap Market (the "Market"). The Market may be
significantly less liquid than the Nasdaq National Market. In addition, the
Nasdaq has proposed more stringent listing and maintenance requirements and, if
the Company should continue to experience losses from operations or for any
other reason have insufficient net tangible assets, it may be unable to maintain
the standards for continued quotation on the Market, and the Common Stock could
be subject to removal therefrom. If such removal were to occur, trading, if any,
in the Common Stock henceforth would be conducted in the over-the-counter market
on an electronic bulletin board established for securities that do not meet the
listing requirements for the Market, or in what are commonly referred to as the
"pink sheets." As a result, an investor would find it more difficult to dispose
of, or to obtain accurate quotations for the price of, the Company's securities.
In addition, such removal would subject the Company's securities to so-called
"penny stock" rules that impose additional sales practice and market making
requirements on broker-dealers who sell and/or make a market in such securities.
Consequently, removal from the Market could affect the ability or willingness of
broker-dealers to sell and/or make a market in the Company's securities and the
ability of purchasers of the Company's securities to sell their securities in
the secondary market. In addition, if the market price of the Company's Common
Stock falls to below $5.00 per share, the Company may become subject to certain
penny stock rules even if still quoted on the Market. While such penny stock
rules should not affect the quotation of the Company's Common Stock on the
Market, such rules may further limit the market liquidity of the Common Stock
and the ability of investors to sell securities in the secondary market.
10
<PAGE>
No Anticipated Dividends. The Company has not previously paid any dividends on
its Common Stock and for the foreseeable future intends to continue its policy
of retaining any earnings to finance the development and expansion of its
business.
Effect of Antitakeover Provisions. Certain provisions of the Company's Restated
Articles of Incorporation and Restated Bylaws and the laws of the State of
Washington could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, control
of the Company. Such provisions could limit the price that certain investors
might be willing to pay in the future for shares of Common Stock. The Company is
authorized to issue Preferred Stock, without shareholder approval, with rights
senior to those of the Common Stock and to impose various procedural and other
requirements that could make it more difficult for shareholders to effect
certain corporate actions.
Limitations on Liability and Indemnification Matters. As permitted by the
Washington Business Corporation Act, the Company has included in its Restated
Articles of Incorporation a provision to eliminate the personal liability of its
directors for monetary damages for breach or alleged breach of their fiduciary
duties as directors, excluding, however, liability for acts or omissions
involving intentional misconduct or knowing violations of law, illegal
distributions or transactions from which the director receives benefits to which
the director is not legally entitled. In addition, the Bylaws of the Company
provide that the Company is required to indemnify its directors under certain
circumstances, including those in which indemnification would otherwise be
discretionary, and the Company is required to advance expenses to its officers
and directors as incurred in connection with proceedings against them for which
they may be indemnified.
11
<PAGE>
RECENT EVENTS
The following summarizes significant events with respect to the Company in
1997.
1. Private Placements. In March 1997, the Company completed two private
placements of equity securities. In the first offering, the Company raised
$1,122,495, less expenses, through the private placement to eight accredited
investors of 299,332 shares of Common Stock and 74,833 warrants (of which 68,167
are private warrants exercisable at $6.00 per share and 6,666 were Redeemable
Common Stock Purchase Warrants, since exercised). The second private placement
raised $3,000,000, less expenses, through the sale of 3,000 shares of Preferred
Stock to the Selling Stockholder. The Preferred Stock will be convertible from
time to time into shares of Common Stock. In addition, the Company issued
private warrants for 29,041 shares of Common Stock to Chanen Painter Equities
Trust Ltd., which acted as the Company's sales agent in connection with these
two private placements.
2. Warrant Exercises/Redemption. On June 25, 1997, the Company redeemed all
of its unexercised publicly held Warrants. To make the exercise of those
Warrants attractive before the redemption, the Company reduced the exercise
price of the Warrants from $7.20 to $5.00 per Warrant, with 1.25 shares of
Common Stock issuable upon exercise of each Warrant. The Company received
approximately $10.6 million from the exercise of 2,130,527 Warrants, net of
expenses, with 95,604 Warrants redeemed at $.05 per Warrant. These funds, along
with funds anticipated from sales of MTA systems, are expected to be sufficient
to fund the Company for at least the next twelve months.
3. Use of Cash Resources. Since its incorporation through March 31, 1997,
the Company's principal sources of liquidity have been net proceeds from the
sale of equity of approximately $32.1 million and the Defense Advanced Research
Projects Agency ("DARPA") research funding of approximately $18.8 million. The
Company has received all $15.5 million allowed under its research contract with
DARPA for the initial system development and currently is billing DARPA under a
research contract awarded in September 1995. As of June 30, 1997 and after
completion of the private placements and warrant exercises and redemptions
described above, the Company had $9.9 million in cash and no bank line of
credit. The Company expects to ship and receive payments for its initial MTA
system in the third quarter of 1997, subject to receiving suitable components
from its third-party vendors. See "RISK FACTORS - Future Capital Needs" and "-
Manufacturing Risks; Reliance On and Capacity of Third Party Sole Source
Suppliers."
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
March 31, 1997 and (ii) as adjusted to give effect to the Warrant exercises and
redemptions (see "RECENT EVENTS Warrant Exercises/Redemption").
<TABLE>
<CAPTION>
March 31, 1997 (1)
-----------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Long-term portion of capital leases ......................................... $ 107 $ 107
Shareholders' equity:
Convertible Preferred stock:
5,000,000 shares authorized; 3,000 shares issued...................... 2,859 2,859
Common Stock, $.01 par value:
25,000,000 shares authorized; 6,985,488 shares issued and
outstanding, actual; 9,648,607 shares as adjusted.................... 29,248 39,848
Accumulated deficit ..................................................... (29,486) (29,486)
------- -------
Total shareholders' equity ........................................... 2,620 13,221
------- -------
Total capitalization ............................................ $2,727 $13,327
======= =======
- -------------------
(1) Does not include (i) 1,819,199 shares issuable upon exercise of outstanding
stock options as of March 31, 1997 or (ii) 914,342 shares of Common Stock
currently issuable upon exercise of certain privately placed warrants.
</TABLE>
13
<PAGE>
SELLING STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock by the Selling Stockholder and as adjusted to give
effect to the sale of the Shares offered hereby.
<TABLE>
<CAPTION>
Beneficial Ownership
Shares Beneficially After Offering (2)
Owned Prior to Shared Being ----------------------
Selling Stockholder Offering (1) Offered (1) Shares Percent
- ------------------- ------------ ----------- ------ -------
<S> <C> <C> <C> <C>
Advantage Fund Ltd. 1,395,000 1,395,000 -0- -0-
(1) The number of shares of Common Stock shown as beneficially owned and
offered by the Selling Stockholder represents the number of shares which
the Company has initially agreed to register. Pursuant to Rule 416 under
the Securities Act, the number of shares of Common Stock offered by the
Selling Stockholder hereby and included in the Registration Statement of
which this Prospectus is a part also includes such presently indeterminate
number of shares as may be issued on conversion of the Preferred Stock and
in payment of dividends thereon pursuant to the provisions of the Statement
of Rights and Preferences of the Preferred Stock regarding determination of
the applicable conversion price and the dividend calculation rate.
Accordingly, the actual number of shares of Common Stock issued or issuable
upon the conversion of the Preferred Stock and the payment of dividends
thereon is subject to adjustment depending upon factors which cannot be
predicted by the Company at this time, including, among others, the future
market prices of the Common Stock and the payment of dividends on the
Preferred Stock in additional shares of Common Stock. Pursuant to the terms
of the Statement of Rights and Preferences governing the Preferred Stock,
the Preferred Stock is convertible by each holder thereof and dividends are
payable in Common Stock only to the extent that the number of shares of
Common Stock then beneficially owned by such holder and its related persons
(not including shares underlying unconverted shares of Preferred Stock)
would not exceed 4.9% of the then outstanding shares of Common Stock as
determined in accordance with Sections 13(d) and 16 of the Securities
Exchange Act of 1934, as amended. Accordingly, the number of shares of
Common Stock set forth for the Selling Stockholder may exceed the actual
number of shares of Common Stock that the Selling Stockholder could own
beneficially at any given time through its ownership of the Preferred
Stock.
(2) Assumes all of the Shares being offered are sold.
</TABLE>
The Selling Stockholder and its officers and directors have not held any
positions or office or had any other material relationship with the Company or
any of its affiliates within the past three years.
In recognition of the fact that the Selling Stockholder may wish to be
legally permitted to sell its Shares when it deems appropriate, the Company
agreed with the Selling Stockholder to file with
14
<PAGE>
the Securities and Exchange Commission, under the Securities Act, a Registration
Statement on Form S-3, of which this Prospectus forms a part, with respect to
the resale of the Shares and has agreed to prepare and file such amendments and
supplements to the Registration Statement as may be necessary to keep the
Registration Statement effective until the Shares are no longer required to be
registered for the sale thereof by the Selling Stockholder.
PLAN OF DISTRIBUTION
The Shares offered hereby by the Selling Stockholder may be sold from time
to time by the Selling Stockholder, or by pledgees, donees, transferees or other
successors in interest. Such sales may be made on one or more exchanges or in
the over-the-counter market (including the Nasdaq SmallCap Market), in privately
negotiated transactions, through the writing of options on the Shares, or
otherwise at market prices then prevailing or at prices related to the
then-current market price, at fixed prices that may be changed, or at negotiated
prices. The Shares may be sold to or through brokers or dealers, who may act as
agent or principal, or in direct transactions between the Selling Stockholder
and purchasers. In addition, the Selling Stockholder may, from time to time,
sell short the Common Stock, and in such instances, this Prospectus may be
delivered in connection with such short sale and the Shares offered hereby may
be used to cover such short sale.
Transactions involving brokers or dealers may include, without limitation,
(a) ordinary brokerage transactions, (b) transactions in which the broker or
dealer solicits purchasers, (c) block trades in which the broker or dealer will
attempt to sell the Shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction and (d) purchases by a broker
or dealer as a principal and resale by such broker or dealer for its account. In
effecting sales, brokers and dealers engaged by the Selling Stockholder or the
purchasers of the Shares may arrange for other brokers or dealers to
participate. Such brokers or dealers may receive discounts, concessions or
commissions from the Selling Stockholder and/or the purchasers of the Shares for
whom such broker or dealer may act as agent or to whom they may sell as
principal, or both (which compensation as to a particular broker or dealer may
be in excess of customary commissions). The Selling Stockholder and such brokers
and dealers who act in connection with the sale of Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on any resale of the Shares as principal may be
deemed to be underwriting discounts and commissions under the Securities Act.
Including and without limiting the foregoing, in connection with
distributions of the Common Stock, the Selling Stockholder may enter into
hedging transactions with brokers or dealers and the brokers or dealers may
engage in short sales of the Common Stock in the course of hedging the positions
they assume with the Selling Stockholder. The Selling Stockholder may also enter
into option or other transactions with brokers or dealers that involve the
delivery of the Common Stock to the brokers or dealers, who may then resell or
otherwise transfer such Common Stock. The Selling Stockholder may also loan or
pledge the Common Stock to a broker or dealer and the broker or dealer may sell
the Common Stock so loaned or upon default may sell or otherwise transfer the
pledged Common Stock.
15
<PAGE>
The Company is bearing all costs relating to the registration of the Shares
other than certain fees and expenses, if any, of counsel or other advisors to
the Selling Stockholder. Any commissions, discounts or other fees payable to
brokers or dealers in connection with any sale of the Shares will be borne by
the Selling Stockholder and/or purchasers participating in such transaction.
None of the proceeds from the sale of the Shares by the Selling Stockholder will
be received by the Company. The Company and the Selling Stockholder have each
agreed to indemnify the other against certain liabilities, including liabilities
arising under the Securities Act.
Any Shares covered by this Prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under such Rule rather pursuant to
this Prospectus.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996
and for each of the two years in the period ended December 31, 1996,
incorporated by reference into this Prospectus, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports with respect
thereto. Such financial statements have been so incorporated in reliance on the
reports of such firm given upon their authority as experts in accounting and
auditing.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Restated Articles of Incorporation provide that, to the
fullest extent permitted by the Washington Business Corporation Act, the
Company's directors will not be liable for monetary damages to the Company or
its shareholders, excluding, however, liability for acts or omissions involving
intentional misconduct or knowing violations of law, illegal distributions or
transactions from which the director receives benefits to which the director is
not legally entitled. The Company's Restated Bylaws provide that the Company
will indemnify its directors and, by action of the Board of Directors, may
indemnify its officers, employees and other agents of the Company to the fullest
extent permitted by applicable law, except for any legal proceeding that is
initiated by such directors, officers, employees or agents without authorization
of the Board of Directors. See "Risk Factors - Limitations on Liability and
Indemnification Matters."
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 16. Exhibits.
---------
3.1 Restated Articles of Incorporation of the Company(1)
3.2 Restated Bylaws of the Company(1)
3.3 Statement of Rights and Preferences of the Series B
Convertible Preferred Stock of the Registrant, as filed
with the Secretary of State of the State of Washington on
March 24, 1997(2)
4.1 Subscription Agreement, dated as of March 24, 1997, by
and between the Registrant and Advantage Fund Ltd.(2)
4.2 Registration Rights Agreement, dated as of March 24, 1997,
by and between the Registrant and Advantage Fund Ltd.(2)
5 Opinion of Stoel Rives LLP(2)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Stoel Rives LLP (included in Exhibit 5)
24 Power of Attorney (2)
- --------------
(1) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement on Form SB-2 Registration No. 33-95460-LA, filed with the
Commission on September 22, 1995
(2) Incorporated by reference to the Company's Registration Statement on Form
S-3, Registration No. 333-25675, filed with the Commission on April 23,
1997.
Item 17. Undertakings.
-------------
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post- effective amendment to this Registration
Statement
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration
Statement (or the most recent post-
II-1
<PAGE>
effective amendment thereof) that, individually or in
the aggregate, represent a fundamental change in the
information set forth in this Registration Statement;
and
(iii) To include any additional or changed material
information with respect to the plan of distribution;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii)
do not apply if the information required to be included in a
post-effective amendment by those paragraphs is incorporated
by reference from periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Exchange Act.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Seattle, State of Washington, on July
9, 1997.
TERA COMPUTER COMPANY
By: /s/ JAMES E. ROTTSOLK
-------------------------------------
James E. Rottsolk
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities indicated below on the 9th day of July, 1997:
Signature and Title
- -------------------
/s/ Burton J. Smith* /s/ Daniel J. Evans*
- ---------------------------------- ----------------------------------
Burton J. Smith Daniel J. Evans, Director
Chairman of the Board of Directors
/s/ James E. Rottsolk /s/ Kenneth W. Kennedy*
- ---------------------------------- ----------------------------------
James E. Rottsolk Kenneth W. Kennedy, Director
Chief Executive Officer, Chief
Financial Officer,
Chief Accounting Officer, and
Director
/s/ David N. Cutler* /s/ John W. Titcomb, Jr.*
- ---------------------------------- ----------------------------------
David N. Cutler, Director John W. Titcomb, Jr., Director
*By /s/ James E. Rottsolk
------------------------------
James E. Rottsolk
Attorney-in-Fact
II-3
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EX. NO. DESCRIPTION PAGE NO.
3.1 Restated Articles of Incorporation of the Company(1) --
3.2 Restated Bylaws of the Company(1) --
3.3 Statement of Rights and Preferences of the Series B
Convertible Preferred Stock of the Registrant, as filed
with the Secretary of State of the State of Washington
on March 24, 1997(2) --
4.1 Subscription Agreement, dated as of March 24, 1997, by
and between the Registrant and Advantage Fund Ltd.(2) --
4.2 Registration Rights Agreement, dated as of March 24,
1997, by and between the Registrant and Advantage Fund
Ltd.(2) --
5 Opinion of Stoel Rives LLP(2) --
23.1 Consent of Deloitte & Touche LLP 22
23.2 Consent of Stoel Rives LLP (included in Exhibit 5) --
24 Power of Attorney(2) --
- --------------
(1) Incorporated by reference to Amendment No. 3 to the Company's
Registration Statement on Form SB-2, Registration No.
33-95460-LA, filed on September 22, 1995.
(2) Incorporated by reference to the Company's Registration Statement
on Form S-3, Registration Nos. 333-25675, filed with the
Commission on April 23, 1997.
II-4
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference into Registration Statement
No. 333-25675, as amended, on Form S-3 of Tera Computer Company of our
report dated February 7, 1997, appearing in the Annual Report on Form
10-KSB of Tera Computer Company for the year ended December 31, 1996, and
to the reference to us under the heading "Experts" in the Prospectus, which
is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Seattle, Washington
July 9, 1997
